International Capital Flows under Dispersed Information: Theory and Evidence

Cédric Tille and Eric van Wincoop

No 14390, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We develop a new theory of international capital flows based on dispersed information across individual investors. There is extensive evidence of information heterogeneity within and across countries, which has proven critical to understanding asset price behavior. We introduce information dispersion into an open economy dynamic general equilibrium portfolio choice model, and emphasize two implications for capital flows that are specific to the presence of dispersed information. First, gross and net capital flows become partially disconnected from publicly observed fundamentals. Second, capital flows (particularly gross flows) contain information about future fundamentals, even after controlling for current fundamentals. We find that these implications are quantitatively significant and consistent with data for industrialized countries.

JEL-codes: F32 F36 F41 (search for similar items in EconPapers)
Date: 2008-10
New Economics Papers: this item is included in nep-cba and nep-opm
Note: AP IFM
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (26)

Downloads: (external link)
http://www.nber.org/papers/w14390.pdf (application/pdf)

Related works:
Working Paper: International Capital Flows under Dispersed Information: Theory and Evidence (2008)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:14390

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w14390

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().